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Hospitality Investors Trust Bankruptcy: Investors May Have Options
Hospitality Investors Trust is a publicly registered, non-traded real estate investment trust whose initial offering became effective in 2014 and which declared bankruptcy in 2021. According to the REIT’s website, the company “owns a diversified portfolio of strategically-located hotel properties throughout the United States within the select service market of the hospitality sector.” Shares in the REIT were originally sold at a price of $25/share, but their value declined in subsequent years.
Like other non-traded REITs, HIT posed significant risks to investors, including the potential for the entire loss of investment. If your financial advisor did not fully and/or accurately disclose the risks associated with an investment in HIT, including the product’s illiquidity and its stakeholders’ conflicts of interests, you may be entitled to a recovery.
Was Hospitality Investors Trust a Risky Investment?
A prospectus filed with the Securities and Exchange Commission by American Realty Capital Hospitality Trust—the entity now known as Hospitality Investors Trust—in 2014 states that investments in the REIT’s common stock “involve a high degree of risk.” One of the primary risks described by the prospectus is the investment’s illiquidity. “Because no public trading market for our shares currently exists,” the document warns, “it will be difficult for our stockholders to sell their shares and, if our stockholders are able to sell their shares, it will likely be at a substantial discount to the public offering price.”
Some other risks described in the prospectus include:
“We have no prior operating history or established financing sources and will rely on our advisor to conduct our operations. Our advisor has no operating history and is a newly formed entity which has no experience operating a public company.”
“There is no guarantee that distributions will be paid. If distributions are declared and paid, the amount of the distributions paid may decrease or distributions may be eliminated at any time. Due to the risks involved in the ownership of real estate, there is no guarantee of any return on your investment, and you may lose all or a portion of your investment.”
“We established the initial offering price on an arbitrary basis; as a result, the actual value of your investment may be substantially less than what you pay.”
“There are substantial conflicts among the interests of our investors, our interests and the interests of our advisor, property manager, our sub-property manager, our sponsor, our dealer manager and our and their respective affiliates, which could result in decisions that are not in the best interests of our stockholders.”
“We are obligated to pay fees to our advisor, which could be substantial and may result in our advisor recommending riskier investments.”
Taken together, these factors make Hospitality Investors Trust a highly risky investment that likely was not suitable for inexperience and/or conservative investors, especially those with liquidity needs and/or those who cannot afford to lose their principal. Indeed, the prospectus reiterates, “You should purchase these securities only if you can afford a complete loss of your investment.”
Why Did Hospitality Investors Trust’s Value Fall?
HIT’s board of directors reduced the REIT’s net asset value—its total assets minus its total liabilities—several times in recent years. In June 2017, for instance, HIT’s NAV per share was estimated at $13.20 as of March 30th, 2017, “a decline of approximately 38.6 percent year-over-year” from the previous NAV of $21.48/share, according to The DI Wire. In materials provided to shareholders, the company reportedly attributed the decline in part to “higher exit capitalization rates due to an increase in the interest rate environment since the 2016 valuation.”
In May 2019, HIT’s board announced that it the REIT’s NAV/share was $9.21 as of December 31, 2018, “an approximate 33.6 percent decrease compared to the previous $13.87 per share NAV, as of December 31, 2017,” according to The DI Wire. In this case, the company attributed the decline to declining occupancy rates in the hospitality industry, higher labor and other costs, and “increased hotel supply in certain markets which has further driven down the company’s occupancy and rate estimates.”
Hospitality Investors Trust’s NAV declined again in 2019. According to an April report by The DI Wire, the REIT’s board lowered the NAV to $8.35/share as of December 31, 2019. The company attributed the decline not only to lower occupancy rates and higher labor costs, among other industry trends, but also to the company’s sale of 20 properties that had been included in its prior NAV estimate and to “lower estimated sale prices for properties under contract to be sold as compared to their corresponding estimated value included in the previous NAV calculation.”
When Did HIT REIT’s Investors Trust Declare Bankruptcy?
HIT filed for Chapter 11 bankruptcy in May 2021, according to a report by The DI Wire. The REIT’s bankruptcy plan involved the cancellation of common stock shares in exchange for shareholders’ right to receive nontransferable contingent cash payments not to exceed $6/share. That figure represents a substantial decrease from the REIT’s original share price of $25/share.
HIT REIT Losses? Consult with Our Attorneys for Free
Carlson Law represents investors involved in claims against financial advisors and investment firms throughout the United States. If you or a loved one have suffered investment losses on your investment in Hospitality Investors Trust, please call us at 888-976-6111 or complete our contact form for a free and confidential consultation.